Highlights of Merkel interview on Europe

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BERLIN, June 3 (Reuters) - German Chancellor Angela Merkel gave her most detailed response to French President Emmanuel Macron’s proposal to reform the euro zone in an interview with the Frankfurter Allgemeine Sonntagszeitung newspaper published on Sunday.

The following are highlights of what she said on major issues:

ITALY

- Merkel appeared to rule out the idea that the European Central Bank could grant Italy significant debt relief. She said she wanted to work with the new Italian government instead of speculating about its intentions. “Solidarity among euro partners should never lead to a debt union, rather it must be about helping others to help themselves.”

THE EURO ZONE RESCUE FUND

- The European Stability Mechanism, which provides financial assistance, should be turned into a European Monetary Fund, which could offer short-term loans of 5 years. These must be tied to conditionality, be capped in terms of size and be repaid in full. EMF should have the capacity to evaluate the economic situation in member states on its own. Also to assess debt sustainability - and have the instruments needed to restore this if necessary. It should be intergovernmental, with national parliaments retaining their rights. Together with the Commission, two pillars to ensure stability in the euro zone.

“I can imagine the possibility of a credit line that is short-term, five years for example. As such, we would be able to take under our wing countries that get into difficulties because of extraordinary circumstances.”

FISCAL CAPACITY

- Backs investment budget in the low two-digit billions of euros that would be introduced step by step and evaluated over time. Could be in current EU budget or outside. Need to talk about parliamentary control. This should be used to address structural weaknesses in some member states, not acute difficulties.

EU BUDGET

- EU budget for post 2021 period should be agreed before the European elections. All net payers will have to pay more into it. Says there is an “urgent need” to reduce bureaucracy in agricultural policy. Says European Commission’s ideas go “very far”. Describes German Finance Minister Olaf Scholz’s 1 percent proposal as “starting position”.

ASYLUM

- Describes border control, a common asylum policy and combating the reasons for migration as “existential questions” for Europe. Need for common asylum standards in Europe, a common procedure at the external borders, Frontex must become European border police force that can act independently. There is need for a European migration body and a Marshall Plan for Africa. Calls for “flexible system” in which each country makes comparable contribution to the common task. With higher flexibility, can overcome blockade from countries that won’t accept refugees. Not sure that EU will reach deal on asylum by the June summit. Better to give it a few more weeks.

DEFENCE

- Merkel said she had a “positive view” of Macron’s intervention force initiative. “In the future we will have to react to the challenges that we are faced with,” she said. In the medium-term, non-permanent seats of European countries on the UN Security Council should become European seats. She can also envision a European Security Council with rotating seats.

EU INSTITUTIONS

- Fewer EU commissioners. Big countries should also be ready to rotate in and out. Spitzenkandidat process has established itself. But ultimately Spitzenkandidat must be based on transnational lists. (Reporting by Noah Barkin Editing by Giles Elgood)